Firsts are always special, that too, when you are buying your first home! It is a magical feeling. You feel responsible, grown-up, and have the peace of calling your space your home. Though you need to plan in advance to make this experience a dream come true than a nightmare. It is not just a financial decision, but an emotional decision as well.
During this time of the pandemic, buying a house is more challenging than ever. Though with it, the interest rates are declining which can serve as an opportunity to buy your first home.
The process to buy a house is lengthy, starting from whether you want to buy an apartment, a townhouse, a house with a garage, etc. to closing the deal and furnishing it. But first and the foremost thing is that you have to be mentally ready first. So, let’s get started. Here is the guide to buying your first-ever home.
9 Steps to Buying Your First Home
1. Decide if You Are Ready to Buy a House?
Buying a house is a big decision. Before taking any steps, ask yourself if you are financially ready to buy a house? Know that, your expenses would not be limited to paying EMIs, or insurance, it would also include spending money after little things in your house like utility, water, repairing, electricity, etc. You may also have to pay the taxes. If you have not prepared for all these additional expenses in advance, you may find yourself in critical condition.
It would work well if you first get rid of your debts or at least reduce them. You can do so by paying your credit card bills, student loan, etc., and also build a medical and emergency fund.
One way you can see your readiness to buy a house is to act that you have already bought it. In simple words, make a monthly budget in a manner you would do after you have bought a house considering the EMIs, and other house-related bills you need to pay. Save the money designated to house expenses. This will save your suffering, and if it works out, you will gain the boost to buying your first home.
2. Find a House as per Your Needs
The next thing you should do is to find a house that suits your requirements. This includes deciding which type of house you want to buy, for example, if you want to buy a villa, a house with a garage or if you want to buy a house where you can drop your kids at school easily.
Make sure that the house that you buy is closer to your workplace; in that way, it will save you time and the cost of commuting as well. You should also look after the community around the house. After all, you wouldn’t want to buy a house and feel regretful later, right?
For this purpose, you can also consult a mortgage broker. He/she will help you understand the locality better and will make you familiar with rules and regulations. Your house will represent you, thus choose it accordingly.
3. Look Out for Loan/Mortgage Options
This stage requires you to find a loan/mortgage in advance so that when you get a house finalized, this will make sure that the process gets faster. Having registered for a mortgage will give you information on how much would be your monthly payments, what house value you can afford, and what are the current market rates for a mortgage.
Also, know that there are various timelines for a loan like 15 years, 20 years, and even 30 years. The longer the length of your loan the lower the monthly payment would be but along with that, you will have to pay a little higher interest rate.
4. Calculate the House Value You Can Afford
This step is of utmost importance because this will decide how much monthly payment you will have to secure as well as what amount you need to save for the down payment. Generally, your mortgage, taxes, and insurance should not be more than 25 to 30% of your monthly income.
If you buy a house that is out of your range or too expensive, you might secure a down payment but when it comes to paying the monthly bills you will struggle to meet the day’s end. It is better to buy a house that is affordable and leave a comfortable lifestyle than to buy an expensive house and seek financial help from others.
Thus, be honest with yourself about how much you can actually afford to spend for buying your first home.
5. Secure a Down Payment
Before buying a house you need to know that the down payment is the highest amount that you need to save. In Canada, there are various thresholds for a minimum down payment based on the total house value. You can see the same in the table below.
Minimum Down Payment
|$500,000 or less||5% of purchase value|
|$500,000 to $999,999||5% of the first $500,000 of the purchase value|
10% for the portion of the purchase value above $500,000
|$1 Million and more||20% of the purchase value|
The earlier you start to save the amount, the better it would help you to buy your dream house within your expectations and time frame. You can invest money in various financial instruments like equity, mutual funds, etc., and when the time comes it will help you with paying your down payment.
6. Check Out the First Time Home Buyers Programs
This is one of the biggest advantages people in Canada get while buying their first home. There are various first-time home buyers benefits offered to help people fulfill that dreams of owning a house. Some of such benefits are listed below.
- First Time Home Buyers Incentive: it is a shared equity program in which the government helps you to lower your mortgage payment. With this program, you can borrow 5% or 10% of your total house value and the best thing is that you don’t even need to pay any interest. Though you will have to pay the amount back in 25 years or when you sell your house.
- The Home Buyers Plan: In this plan, you can withdraw money from Registered Retirement Savings Plans aka RRSPs.
- Tax Rebates: This provides home buyers with an income tax credit of 5000 dollars. There is also a partial rebate on GST or HST that you pay on your house.
7. Make the Offer for Your First Home
When you finalize the details of your dream house and it suits your pocket, the next step you need is to make an offer. If you have a real estate agent he or she would help you with this.
Making an offer includes deciding on a deposit amount, closing date, home inspection, and looking after other requirements like repairing, furnishing, etc. Once you have done this, you are likely to hear from the seller about what he or she has to offer you. If you both agree, you will pass this stage as well.
8. Call for a House Inspection
After finalizing an offer you need to have a home inspection. The purpose of a home inspection is to check if your house is in a good condition or not like the condition of roofs, plumbing, electricity, and more.
Most of the provinces in Canada have their association with inspectors to provide a better experience to home buyers. If you want to know more about this check it out at the Canadian Association of Home and Property Inspectors.
9. Close the Deal and Move Into Your New Home
This is the last stage of buying your dream house. In this stage, you will have your closing date on which you need to sign your final papers. It is advisable for you to keep a copy of these papers. Also, consult a lawyer if you have any difficulty understanding the terms of it. The overall documentation format would take around 30 to 60 days.
Make sure that you have filled in the correct information in your documentation related to name, address, and bank account. Once you are done with all these legalities, congrats! You are now the owner of your first ever house.
Keep in mind that this is just the beginning of your new phase as the challenges would start now with furnishing your house, painting, repairing, and converting the house into your home. I hope that this guide has helped you understand how to proceed with buying your first home. All the very best!